Anticipated acquisition by Pearl Group of Resolution plc

Affected market: Life insurance products and services

No. ME/3428/07

Please note that the full text of the decision can be downloaded by using the link on the right. What follows are extracts regarding the parties, the transaction, jurisdiction, third party views, assessment and decision.

The OFT's decision on reference under section 33(1) given on 28 December 2007. Full text of decision published 18 January 2008.

Please note that square brackets indicate figures or text which have been deleted or replaced at the request of the parties for reasons of commercial confidentiality.

PARTIES

Pearl Group Limited (Pearl) is the holding company of a number of life assurance companies which manage life insurance products.  Pearl manages closed funds only.

Resolution plc (Resolution) is a specialist manager of life funds which operates closed and open funds, seeks to acquire closed funds and operates an asset management business. Resolution's UK turnover in 2006 was [greater than £70 million].

TRANSACTION

Pearl proposes to acquire the entire share capital of Resolution through its subsidiary, Impala. The acquisition will be partially funded through finance provided by Royal London Mutual Insurance Society (Royal London); on completion of the acquisition by Pearl, various Resolution businesses and assets relating to new business capability (including that of the off-shore life protection business) and in-force funds will be on-sold to Royal London, at a price off-set against the finance provided by Royal London (effectively a prepayment). Although it is envisaged that Pearl will end up with only part of Resolution's assets and business after the on-sale, this decision considers the impact on competition from Pearl owning the whole of Resolution.

Given the way this transaction is arranged, the OFT has considered whether Pearl and Royal London should be treated as associated persons. Section 127(4)(d) of the Enterprise Act 2002 states that the concept of associated persons applies to 'two or more persons acting together to secure or exercise control of a body of persons corporate or un-corporate or to secure control of any enterprise or assets.' However, the transaction raises no competition concerns whether the parties are treated as associated persons or not. Even if the shares of Royal London and Pearl were considered together, the post-merger share of supply and increment would be small and therefore the OFT has not concluded on the matter. The OFT has addressed the subsequent transaction by Royal London in a separate decision. 

Pearl notified the OFT on 23 November 2007. The extended statutory deadline is 9 January 2008.

JURISDICTION

As a result of this transaction Pearl and Resolution will cease to be distinct. The UK turnover of Resolution exceeds £70 million, so the turnover test in section 23(1)(b) of the Enterprise Act 2002 (the Act) is satisfied. The OFT therefore believes that it is or may be the case that arrangements are in progress or in contemplation which, if carried into effect, will result in the creation of a relevant merger situation.

THIRD PARTY VIEWS

The OFT received very few third party comments, receiving responses from just two competitors and one customer. None raised any merger-specific competition concerns.
 
ASSESSMENT

Pearl and Resolution overlap in the management and acquisition of closed life insurance funds in the UK.

For the purposes of this assessment, the OFT has considered the impact of the anticipated transaction on the life insurance market in the UK, as well as the market for the consolidation of closed funds in the UK, the provision of off-shore life insurance in the UK and asset management in the UK.

This merger raises no competition concerns given that the shares of supply in any of the segments looked at under this competitive assessment are below 10 per cent with increments below five per cent, and that the market is fragmented with a number of larger competitors.

Pearl will be acquiring Resolution with the help of finance from Royal London which will be used as a prepayment for the subsequent on-sale of certain Resolution businesses and assets. As such the OFT also considered whether Royal London and Pearl would be considered associated persons for the purposes of the investigation under the Enterprise Act 2002. However, even if the shares of Royal London and Pearl were considered together, the resultant post-merger shares of supply and increment are small enough such as to raise no competition concerns and the OFT therefore has not concluded on the matter of associated persons.

Consequently, the OFT does not believe that it is or may be the case that the merger may be expected to result in a substantial lessening of competition within a market or markets in the United Kingdom.

DECISION

This merger will therefore not be referred to the Competition Commission under section 33(1) of the Act.

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